In a little more than a month, Social Security recipients will finally learn the cost-of-living adjustment (COLA) for 2024. Based on current estimates as of September 2023, the COLA will likely be around 3% — well down from this year’s historically high 8.7% adjustment.
There’s a chance the 2024 COLA could drop below 3% if the September inflation rate is especially low. The best-case scenario is that a higher-than-expected inflation report pushes next year’s COLA closer to 4% — but don’t bet on it.
The official 2024 cost-of-living adjustment is expected to be announced on Oct. 12, when the September inflation numbers come out. The Social Security Administration bases its annual COLA calculation on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the third quarter.
CPI-W changes for July, August and September are added together and averaged, then compared with the Q3 average from a year earlier. The percentage difference is the amount of the COLA, which would be payable in Social Security checks beginning in January 2024.
The most recent inflation report, for July 2023, showed a 2.6% year-over-year increase in the CPI-W. However, the average monthly inflation rate has risen at a slightly higher pace, which is why most 2024 COLA estimates are about 3%. The Senior Citizens League, a non-partisan seniors advocacy group, estimates that a COLA of 3% would raise the average monthly Social Security benefit by $53.70.
Because September is the final month to determine the 2024 COLA, inflation would have to spike considerably to push the 2024 COLA much above 3%. The “best-case” scenario for Social Security beneficiaries — a COLA closer to 4% — would mean a worst-case scenario for just about everyone else. That’s because the COLA will only move higher if overall consumer prices also move higher.
As previously reported by GOBankingRates, one possibility is that a severe hurricane season in September could push the 2024 COLA higher. The reason has to do with the impact hurricanes and tropical storms have on gasoline prices. Severe storms often disrupt oil and gas production and distribution, which sends gas prices higher — and those prices make up a key part of the inflation index used to calculate the Social Security COLA.
There have been some very heavy storms of late, including tropical storm Hilary on the West Coast and Hurricane Idalia along the Gulf Coast. As of Friday, Sept. 8, Hurricane Lee was also barreling toward the Atlantic coast.
Researchers at the National Oceanic and Atmospheric Administration recently said there’s a 60% chance of an “above-normal” Atlantic hurricane season, according to the National Weather Service. Damaging storms in the Atlantic and Gulf Coast regions could lead to much higher prices at the pump, experts say.
“Certainly, hurricane season bears close monitoring, and we are entering the heart of it now,” AAA spokesman Andrew Gross told CNBC. “A major storm impacting the Gulf Coast and nearby refineries will likely lead to a spike in gas prices for a few weeks.”